When these and the other 11 countries joined the Euro, they signed up to the Stability and Growth pact. The key rule is national debt must be lower than 60% of GDP or approaching that value.

As can be seen, most countries have ignored this. If France and Germany haven't bothered to adhere to the rules they helped to create, why should the others bother too?

These numbers are for 2010. It is quite likely the 2011 numbers will be higher. The euro-TARP (I mean ESFS FSES FESS, why can't they come with something you can say...) will have a big job buying up debt.

Buying debt doesn't reduce debt. All it does is pass it around. It keeps banks tier 1 capital safe (phew!) and means countries like Greece can come up with more excuses but still have a lender of last resort.

The ECB is banrkrupt. It has already purchased junk debt so will it be allowed to flog it the euro-TARP? I hope so. The euro-TARP will soon become the world's largest ever toxic bucket of subprime debt. Like a monster that needs to eat all the time, it will hoover up cash to secure the debts of the feckless.

The markets have jerked off to the news the EURO founders want the EURO to continue. Of course they do. Germany and France like it because their exports are cheap and the minor countries because it gets them up the social ladder.

Wednesday, September 28, 2011

Squabbles between Germany and the USA ("you sort your own mess out") is quite amusing given the original TARP fund helped out lots of European banks. You see, apart from printing money, the euro-TARP is just not going to be big enough. Unlike the Lehman inspired TARP, we are talking about governments dipping into a fund of cash.

I have been trying to work out what the Banks paid out in bonuses last year. It is something like 60bn. If we assume 50% tax, that is 120bn the banks gave away to undeserving bankers.

So why not force the banks to put their bonus pools into the new Euro-TARP. That should keep Greece going for another 6 months.

Saturday, September 24, 2011

The tittle tattle of default and resignation is starting to bite. UBS say goodbye to the old man who sold out UBS to the Americans and pushed private money to Panama and Andorra. DB will soon be hoovering up the best bits and UBS will be no more.

UBS is a bank. It uses our money to make money. When things go awry it asks us to help it out so we do. UBS is "guaranteed" by the country it resides in. Switzerland. This country is quite wealthy but not quite wealthy enough to look after UBS. This is why it will soon be breaking up UBS.

Some countries have run out of money. That is its people are saying no to more tax and austerity. Companies are running off to lower taxation places or struggling to make profits that can be taxed.

Take Greece. Haircuts all round.

The recent rumors of bail out funds to preserve the Euro and stop any sort of default remind me of the Jim Cramer rhetoric surrounding Bear Stearns. It is too little too late. The German taxi driver (and German tax payer) told me as I went to the airport that over his dead body would be give anything to those lazy Southerners (Greeks, Italians, Spanish and Irish!).

Europe is creating another bail out fund (yawn) based on that well abused TARP fund. This time it is very different because it won't just be financial institutions wanting some free cash. Countries will soon be dipping in. Governments having a lender of last resort is madness.

Who funds the god fund? You and I. The rich are bailing out the poor. Socialism is truly with us. As China turns towards capitalism we all turn into marxists. Funds to bail out the feckless. Funds to preserve the financial system?

If Greek defaults, the IMF will struggle to bail out Italy et al.

We all die in the end. Let us not pretend we don't. Countries do die. Just let them. They can rebuild.

Friday, September 23, 2011

The great depression was cured when we all decided to go to war. Brutal but it worked and we all got to live through the post war boom (fridges, cars, iPhones, online dating, Excel, silicon breasts) up until 2008 when it stopped. The oil crisis of the 70s was bad and so was 1981 and 1987 along with a nasty recession 1990-91. We thought the world would end with LTCM, the odd Russian default but we just kept on soldering on and then hit the leverage problem.

Keeping rates low doesn't mean debt gets paid off any faster. The problem is rates have been too low for such a long time the debt / service ratio has just got too big. Governments are hitting their heads against a brick wall.

The smug Norwegians and Canadians can smile but they will be impacted too (although I wish I could be old in their countries and not mine) for they may soon have to ramp up their military because we want what they have got.

The way out is all out war. The recent discovery that Einstein was a fraud and light isn't that fast after all, it is clear the world order is going to change. The war will be between the haves (those with no debt) and those who dont (most of the non oily West). Mastercard versus Paypal. eBay versus Amazon.

All very grim and distracting. Which is what the news is all about.

The reality is markets are cheap, many companies are full of cash, inflation is pretty low, pent up demand is great and liquidity is ok. The volatility is all about the war between the USD and the EUR.

When Obama and TFG moan about the lack of action re Greece, they are really saying we want it to default asap and the EUR to collapse so we can back to being the Big Daddy.

So we are at war already. It will be over by tea time and order will be restored.

Thursday, September 22, 2011

The Purpose of the Fed as per wikipedia is to stop financial panics. 1907 was a big one and the Fed was created in response to this. So let us see if the Fed is doing what it should be doing

To address the problem of banking panics...from what is happening in the markets the Fed is causing a banking panic

To serve as the central bank for the United States...seems to serving China more than the USA

To strike a balance between private interests of banks and the centralized responsibility of government...the fed bailed out the banks so they could pay bonuses and so served the private interests of a few bankers

To supervise and regulate banking institutions...regulation is getting worse and supervision is about the same; thank goodness UBS isn't US based

To protect the credit rights of consumers...the foreclosure debacle indicates anyone who has debt should be saved so yes they are helping out the indebted

To manage the nation's money supply through monetary policy to achieve the sometimes-conflicting goals of

maximum employment...given anyone out of work more than 12 months is excluded from the stats, the Fed is way off full employment. The only people who have jobs are bankers.

stable prices, including prevention of either inflation or deflation[32]...inflation pumping away at 5% this is a big failure

To maintain the stability of the financial system and contain systemic risk in financial markets...the most volatile markets for years (VIX) so a big flop there

To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

To facilitate the exchange of payments among regions...a big tickTo respond to local liquidity needs...a big QE tickTo strengthen U.S. standing in the world economy...mmmm, not looking good from where we are

2/10 is a poor showing.

Bernanke is useless. He should be the CEO of UBS where he would feel at home.

Monday, September 19, 2011

You could start off gambling, punting on a spread bet and then trading on your own account. But who wants the risk of trading one's own money and who wants to trade with a few bucks? Wouldn't it be fun to bet hundreds of millions on the markets with other people's money? That sounds more like it.

For most graduates, trading is the job they want. Getting to do it you must be a superstar. You must have won a gold medal at the Olympics, been awarded a Nobel prize in your spare time and graduated from Harvard and Cambridge by the time you were 7 years old. This may get you an intern placement and onto a grad scheme. Just. Goldman et al like the best. Top academics, stamina and smartness. It is a hard slog to trade a bank's balance sheet.

Of course many who trade don't have any of this background at all. They have attained the best job and got paid the most by coming in through the back door; the "settlements" department.

Operations is often seen to be a back office backwater. Dull. Badly paid. But they are wrong. Settlements people are where its at. These people are risky, dangerous and cause great distress.

The demise of Lehman signalled the death of under capitalized and over leverage investment banks. Citigroup, Bank of America and even Goldman Sachs were destined to be ripped apart by capitalism. Alas, socialist and liberal ideology kicked in and they were saved. Ungraciously, the banks then picked up the pieces and started over as if nothing had happened.

A few changes to regulation like Frank Dodds and Volker and AIFM and Vickers have hardly change anything. Banks are smart and can navigate around these obstacles and are already doing so. Take Volker with the term "hedging" not being defined properly - already we have prop desks renamed as hedging desks to overcome closing down prop trading. There are arms length offshore entities being set up so retail banks can pretend to deposit overnight capital to a safe haven where their ring fenced prop desks can use the capital for their activities. It has been done before and it will done again. And it goes on. Too much tweaking is like a red rag to a bull.

Banking bashing continues because the banks got away with it. Free capital injections from the tax payer and the continuation of employees come first, shareholders and government backers second has ensured millions are paid to people in an elite club who feel entitled to wealth without putting up any risk capital themselves personally.

If the regulators wanted to sort out the problem of having only a handful of mega huge banks holding capitalism to ranson they need to bring some competition in. The best way would be to make the people who run banks personally responsible for their actions. So make them partners. If it goes wrong, they go down. Goldman Sachs was a very successful partnership and then screwed up when it went public. There should be no limited liability. If they mess up, they lose all their assets and go to prison. Harsh but it works as it stops the firm treating governments as insurance policies.

The Real GreekIsn't it funny how the Greeks are causing so many problems. From the Delta One at UBS to their own sovereign debt crisis, they too are having the last laugh. UBS know what Delta is. But what about all the other greeks - Gamma in particular...

Friday, September 16, 2011

Not a particularly smart guy. But he did outsmart the smart and brought down Barings all those years ago. He started trading naked to cover his losses. Premium collecting mostly. So now we hear UBS had their own Leeson with the not-quite-rolling-off-the-tongue name of Kweku Adoboli. He went to a mid tier university and did a degree in eCommerce. So not your Ivy League sort then.

One of his bosses went to Harvard and worked for the Fed (see yesterdays fintag) but he seemed more interested in collecting titles and enhancing his resume than ensuring there was adequate risk management.

Adoboli wasn't hedging his ETF book apparently and started to trade naked. Was it an FX hedge that went the wrong way? Or was it him syphoning off a few dollars? All will be revealed in due course. Like a poker player he went for more and more and failed to recognise the probability of not gaining back his losses. A classic trading error but then he had only been trading a couple of years. Where was his team leader? The grand sounding Delta One division he worked in came out of O'Connor one the best derivatives houses ever. The smart people left and the not so smart with degrees in Telephone Management and Body Art took over and here we are today.

One of the problems was in the product he traded - ETFs. Exchange Trade Funds. They are listed so are nice and liquid and retail houses love them. The EU loves them. Regulators too. The pension funds of regulators and politicians are full of ETFs. Problem is most are swaps on underlyings. They are just bits of paper that correlate to something else. How many Gold ETFs actually own the physicals? They are an illusion. Some are saying ETFs are the next SubPrime. Personally I think Sovereign Debt is the next SubPrime but regulators are just not able to do anything about both because they are conflicted. Regulators are run by the State so Sovereign Debt is a no go. ETFs are what Regulators love to bits as it ticks all the right boxes for retail investors.

However, nobody lost anything except it appears UBS. They are a bank and everyone hates banks. UBS is a dysfunctional bank. I have friends who have worked there in senior positions and they say its like working for the civil service with big pay packets. It has that Swiss attention to detail but in the wrong areas (Swiss based Tremont was very anal re DD and yet invested mostly in Madoff). They love mancos and excos and meetings and carrying around hardbacked exercise books and of course powerpoint. Its systems are legacy and they spend a lot money on blackbox programming (which IT people hate doing) and security and the rest is cobbled together off the shelf and bespoke apps. It is a mess but keeps many people employed.

UBS was a great private bank. It should have stuck to that. Rumours are UBS (The Swiss government) will be selling their Investment Bank soon and maybe this Leeson episode will pre-empt it.

Who do we blame? The Europeans love the blame culture. The ETFs or the Bank? Both is the answer.

Thursday, September 15, 2011

It was smacked during the subprime debacle and wrote off most of its balance sheet. Senior management was brought in to sort out the mess . I mean who is this guy from the Fed?

Darryll HendricksHead of StrategyUBS Investment Bank

Since September 2011, Darryll Hendricks is Head of Strategy for UBS Investment Bank. Previously he was Managing Director and Global Head of Risk Methodology for UBS Investment Bank, where he was primarily responsible for leading the strategic remediation and enhancement of market and credit risk methodologies as well as the independent review of valuation models. Since fall 2009, he also has served as the chair of the US industry task force on tri-party repo infrastructure. Before joining UBS, Darryll worked at the Federal Reserve Bank of New York for 13 years where he focused on capital regulation and on the risk assessment of clearing and settlement infrastructure. Darryll has a PhD from Harvard Universit

Monday, September 12, 2011

Trying to ring fence banks is ludicrous. Not only is it not practical it is pointless. As has been noted by others, the debt crisis was not caused by banks - it was also caused by retail outfits thinking they were investment banks (RBS, Northern Rock, AIG) but who cares? What us Brits care about is tax revenue. We need lots of it so alienating Banks who pay a lot of tax is pointless. HSBC and Barclays will soon be relocating and the UK will start moving into France territory; Bankrupt with spin.

So UK inflation is pumping hard at 4.5% and interest rates stay at nearly zero. What is the point of giving the rate setting policy to the Bank of England who won't use it? Any monkey can keep it at nearly zero. Remember the days when the rate setting committee (who spend most days in Starbucks near Mansion House) would make a song and dance about tweaking the rates 25 bips? Pathetic. Rates going up will dampen inflation and keep wage rises down. Inflation leads to job losses leads to higher benefits and lower taxes which equals anarchy (see below re Slovenia) and MORE GOVERNMENT DEBT.

Why the UK is AAA is beyond me.

Not that we are alone. Being German is very frustrating at present. Their leader is way out of her depth and should just say it as it is instead of spooking the markets with comments about Greece that can be interpreted either way. The EURO will break up and the UK who has enjoyed not being part of the Euro will end up being a weaker currency for it.

Why do I live here? Well there is more to life than wealth and safety and opportunity. Better to live in a dogs dinner with culture and beauty and history and humour than live in Norway. Or Canada. Or Singapore. Or Australia. For the moment that is.

Thursday, September 8, 2011

News comments:GBP is a liquid currency so why is the Krone or the Yen more desirable?

Just as Switzerland starts the trend in currency pegging, citing deflationary and painful export price disadvantages as reasons amongst others, the GBP should be taking over its role as a flight to safety.

London is certainly a flight to real estate safety and despite high taxes most international companies have to be there. Banks, media, technology, they love the place. It may be creaking at the seams but it has highly skilled workers, great football and the best bars and clubs. Schools are even better.

So why is the GBP such a poor currency? Mervyn King wants to know why which is why QE nth edition starts again. He knows, like the IMF and everyone else, most banks are bust. Their assets are overvalued and their liabilities hidden off balance sheet. They employ too many expensive people and their business model is bust. They are however the lifeblood of the UK. No banks = lower GDP = higher unemployment = less taxes = lower real estate prices. I mean what else does the UK do these days?

Gone are the manufacturing innovations. Gone are the ship builders. Gone are the slaves. In its place are call centers, distribution centers and shopping malls selling stuff made in China. The UK is just a broker these days.

The UK has run out of options. It is cutting, keeping taxes high, dampening growth and still paying huge monthly debt interest. It needs inflation. We all do. Just as Obama needs to understand why he is the next Jimmy Carter, the UK needs to ensure it doesn't become the next Japan and GBP to become the next JPY.

Tuesday, September 6, 2011

News comments:Ha. So as predicted the Swiss decided enough enough.The flight to the swissie has been over done and no more will it be the haven of safety. So where next? Poor old yen and down under dollars.Pegging currency is not what one does in a global economy. Next we will have trade wars and people transacting using suitcases and gold rolexes.